Why Weak Currencies Affect Exports Less Central banks around the world have loosened monetary policy this year in the hopes of nudging down currencies and giving a lift to exports. But it hasn’t had much of an effect this time. The reason? A change in what exports are made of.
(…) What has changed is where businesses source the things they need to make the products they export. Manufacturers once found most components needed to make their goods at home. Now they increasingly look abroad for such inputs. As a result, exports now incorporate a lot more imports.
It is still the case that when a currency such as the euro weakens, it reduces the price of goods sold by German manufacturers in the U.S. But it also increases the price of the things that German manufacturers import to make those exported goods. (…)
The foreign content of Switzerland’s exports, for instance, increased to 21.7% in 2011 from 17.5% in 1995, while the imported content of South Korea’s exports almost doubled, to 41.6% in 2011 from 22.3% in 1995.
Economists at the International Monetary Fund and the World Bank have used those measures to assess whether currency movements have the same impact they once did on exports and imports. They found that the effect has in fact reduced over time, by as much as 30% in some countries.
the degree to which a currency movement boosts or reduces exports depends on how large their foreign content is. For the economy as a whole, the foreign share of U.S. exports is at the lower end of the global range, at around 15%, compared with more than 25% in Germany.
“It’s more complicated as a story for the U.S. because of the low foreign content,” said Sebastian Miroudot, a trade economist at the OECD.
(…) The Energy Information Administration now predicts that companies operating in U.S. shale formations will cut production by a record 570,000 barrels a day in 2016. (…)
“You are going to see a pickup in bankruptcy filings, a pickup in distressed asset sales and a pickup in distressed debt exchanges,” said Jeff Jones, managing director at Blackhill Partners, a Dallas-based investment banking firm. “And $35 oil will clearly accelerate the distress.” (…)
Russia says Saudi Arabia destabilized oil market: TASS Saudi Arabia has destabilized the global oil market by increasing production, TASS news agency quoted Russian Energy Minister Alexander Novak as saying on Monday.
Farmers Suffer From El Niño Higher temperatures and lower rainfall in eastern Australia, Southeast Asia and India are affecting industries from Australia’s traditional cattle ranching to Vietnam’s coffee crop.
(…) Since May, El Niño has brought high temperatures and lower-than-normal rainfall to eastern Australia, Southeast Asia and India. The drier conditions make it more costly and time-consuming to produce many agricultural products, a factor that has driven up prices in the latter half of 2015. Futures of agricultural commodities have risen since June, with Malaysian palm oil up 9.6% and raw sugar 25% higher.
Other regions have benefited from the weather system. In South America and the U.S., El Niño has brought ideal conditions to the region, supporting bumper grain crops. (…)
The Food and Agriculture Organization of the United Nations already expects global rice production to contract in 2015 due to the weather and it could fall further depending on El Niño’s impact over the coming months. The Australian government had to downgrade expectations of a bumper wheat crop after a lack of rainfall in the weeks before harvest hit yields.